2019-09-16-TransactionalServicesProposalDechertParisFINAL

PROPOSAL FOR SERVICES September 16th, 2019

OVERVIEW

0

Preface

p. 4

1

Our Understanding of the Brief

p. 6

Key Considerations and Challenges Preliminary Overview of Strategy Options

2

p.8

3

Market Context

p.11

4

Scope of Services – Phase 1 & 2

p.12

5

C&W Team

p.16

6

Fee structure

p.18

7

Annexes

p. 21

2

0

Preface

Preface

Cushman & Wakefield France is delighted to submit this proposal for services in respect of your Parisian offices. We are quite excited about the opportunity of pursuing the great relationship which exists between our two firms : the depth of understanding of your needs and priorities that we have developed over the last few years thanks to our work with you in the US and London, combined with our intricate knowledge of your situation here and of the Paris market generally, mean that we are uniquely positioned to help you make the right decision and then optimize the resulting negotiation which we will lead, or support, as you prefer. Dechert occupies one of Paris’ landmark office complexes. A tired, former 1960’s headquarters of the state-owned utilities company EDF was transformed in 2004-2006 by the leading French developer-investor Unibail. Although they did a great job restructuring the property the building’s structure, due to its forest of columns and its limited slab-to-slab, lettings were initially slow - until the 2007 economic boom ensured the project’s success. The last dozen years have seen peaks and troughs for Capital 8, but in 2018, when Unibail sold to the current owner, Invesco, the building was again 100% let. Your firm took initial space in the building shortly after its completion, in 2007. One of the strengths of Capital 8 is that it is a genuine ‘business center’, with currently some 17 different tenants. This multi-letting has allowed Dechert to progressively extend. First in 2012 – when you signed a new 10 year 1 month lease whilst adding the 10 th floor ‘Centre’ space, then again in 2014, 2016 and 2017. This flexibility should theoretically work in both directions, with the possibility of reducing footprint either through early partial surrender - or through short-term sub-letting. You are rightly commencing your strategy review for Paris well ahead of the 31 st January 2023 lease expiry. The central Paris market is under intense pressure, with average vacancy rates in the CBD under 2%, and well below that for prime space. Competition for space is fierce and rents are rising. Faced with this scarcity of suitable space more and more occupiers are choosing the pre-let route; sometimes as far as two or three years’ ahead. Before committing to occupation beyond 2023 you will want to be sure that Capital 8 still offers the best, value-for-money solution for your long-term needs here in Paris. Since 2007 there have been changes : the building will be nearly 17 years’ old when you reach lease expiry, whilst a direct competitor, Paul Hastings, moved into the former Eurazeo space on rue Monceau - with their own, independent entrance. Meanwhile the building is very expensive; your total occupancy costs are some 1 100€/m². The result of a high rent and high service charges, with a big ratio of common parts. We will help you conduct a thorough, ground-up strategy review, taking into account all salient issues. This will enable you to take the right decisions in a timely manner. Once these decisions are made we will bring all of our experience and market knowledge to bear in order to secure the best possible terms and conditions for Dechert. We will focus not just on financials, important as these are, but also on all the qualitative issues including, for example, future flexibility. We have pleasure in setting out below, concisely, our approach and fee proposal.

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1

Our understanding of the Brief

Our understanding of the Brief

Dechert wishes to appoint a real estate consultant to commence a thorough review of its Paris office premises, over 50 000 sq ft and costing some 6M$ per year, well ahead of the lease expiry on 31 st January 2023. Although your lease expiry is still over three years’ away, you estimate that your current space requirement may be closer to 40 000 sq ft. So there may be potential to make savings ahead of lease expiry, either through an early lease re-gear or through sub-letting of excess space – commensurate of course with minimal disruption to your business. You wish to examine the possibility of negotiating a new lease for Capital 8, in line with your long- term needs. In doing this you will want to cover off all relevant detail, including the technical quality of the building and its equipment’s life cycle, the tenant mix, the priorities and positioning of your new landlord. Evaluating your current lease terms and obligations, including your unusual lease renewal clause (a Unibail ‘specialty’), will naturally be a critical part of the review. You will meanwhile want to conduct a thorough review of alternatives in the market, assessing all potential relocation buildings that can currently be identified for occupation in 2022. Given market conditions, and at this stage in the project, this will essentially concern single-occupier, standalone opportunities, typically already undergoing renovation or where tenant departures are imminent. Although such properties can give great visibility and identity they frequently have the drawback of smaller, sometimes difficult, floor plates. Once a thorough review of options has been conducted we expect you will want to test the appetite of your current landlord for an early lease renewal. Notwithstanding very strong prevailing market conditions, we expect Invesco to want to retain Dechert as a high-profile, long-standing ‘core’ tenant of the Capital 8 complex. To maximize pressure on him we recommend undertaking a parallel tendering of a selection of suitable and credible alternative buildings. These will not be numerous, but we have already identified some good opportunities that are worth consideration in their own right and will in any event serve as an effective smokescreen for negotiations with Invesco.

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2

Key Considerations and Challenges Preliminary Overview of Strategy Options

Key Considerations and Challenges

If appointed we envisage a comprehensive ‘kick-off’ meeting, where we exchange with you on all issues, criteria and priorities. According to our current knowledge of your situation and your current building we anticipate that the following will be amongst your key considerations: • Identifying the medium and long-term requirements for Dechert in Paris – this will be the key driver for the project • Evaluating the benefits and short-comings of Capital 8 from Dechert’s perspective. This will necessitate a thorough review of all aspects, including the building’s condition and position in the technical ‘life-cycle’ • Operating in adverse market conditions : how to counter a landlord-favorable market, with limited availability • Understanding the impact of any decision in terms of both OpEx and capital investment, but also in terms of business disruption, notably in the case of a down-sizing within Capital 8.

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Preliminary Overview of Strategy Options

At this stage we have identified the following, broad strategy options : 1. Negotiate a new lease in Capital 8, in the coming months, for a 9 year firm period from early 2020, at a market rent and in exchange for the landlord agreeing to an early hand back of up to 1 000m² (space on either 9 th or 10 th floor, depending on needs and write-off costs/re-fit costs) 2. Identify a single-occupier building which will be available for fit-out by early/mid-2022. Agree a pre-let for this building in early 2020. Quit Capital 8 towards end-2022, providing sufficient time to respect reinstatement obligations 3. Identify currently surplus space and let this on a short-term, non-renewable lease until your lease expiry in January 2023 (Note that such leases are for a maximum 36 month term under French lease law). Dechert to then review space requirement again in 2021, in order to finalize long-term strategy at that time (‘stay versus go’).

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3

Market Context

Market Context

Understanding the market context is of course critical to establishing a realistic real estate strategy. Almost all major law firms are concentrated in the core Paris CBD, a situation which we do not see changing. Unlike New York, or Central London, the Paris CBD does not offer high-rise space. In addition a significant proportion of the office stock is accommodated in either historical buildings, or behind historical facades. To this extent the Capital 8 building is an exception. This leads to a structural deficiency of high-quality modern space. It also makes for an agreeable working environment, which attracts a wide range of users - from professional services to high tech/web companies. The Paris CBD resists well even in periods of economic recession, whilst the last two to three years have seen demand rising sharply. The CBD market has been put, somewhat artificially, under even greater pressure since 2017 due to the intense activity of co-working providers, notably WeWork but also Kwerk and IWG plus a myriad of local operators. These companies have been particularly active in the pre-letting market, soaking up future supply. After a period of declining landlord incentive packages, the last 12 months have seen rising head- line rents. Given the shortage of space, including looking forward into 2020 and even 2021, we expect this trend to continue. A substantial proportion of the 2020 supply of prime space is already pre-let, with landlords favoring single tenants for building, which renders pre-letting of part only of newly-renovated buildings difficult. Annex 1 provides further information on market conditions. Cushman & Wakefield carefully tracks future building deliveries, at the same time anticipating tenant departures in order to identify future supply. As indicated above, we have already identified a number of credible, single-occupier properties offering 40 - 50 000 sq ft that would be ready for occupation in 2022. We include a selection of such properties in Annex 2.

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4

Scope of Services

Scope of services

1

Phase 1 : Strategy Overview

• Detailed analysis of your current situation : a thorough review of your lease, rental benchmarking, a comprehensive review of the Capital 8 building, its tenant mix and likely future letting situation, plus a review of the positioning of your new landlord • Analysis of Dechert’s current layout and space requirements. Preparation of a generic ‘space requirements model’ for validation by the Partners, to serve as basis of review of alternative sites • Preliminary analysis of what would be required to handback excess space in Capital 8 to the landlord… or to free up excess space temporarily for sub-letting up to lease expiry • Detailed analysis of the Paris CBD market: both to review prospects for negotiations with the landlord of Capital 8, and to identify credible alternatives • Preparation of a short-list of potential relocation sites with estimation of costs • Elaboration of the principal Strategy Options • Financial analysis and presentation of findings to Dechert

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Scope of servicres

2 Phase 2 : Implementation of Preferred Strategy Our service delivery in Phase 2 will of course depend on the chosen strategy. As you indicate in your request for proposals this is essentially a ‘stay versus go’ mission, but with still over three years to go before your lease expiry you may decide after Phase 1 to postpone any final decision in this respect until closer to the expiry date, or undertake short-term sub-letting of excess space to defray OpEx. Regardless of the strategy which is adopted Cushman & Wakefield will provide detailed advice and conduct negotiations on your behalf, through to lease finalization and signature. In the case of early lease renewal/re-gear, we will assist you in all aspects of the negotiations with Invesco, putting in place an effective ‘smokescreen’ consultation of the market, identifying credible alternative solutions which fit your timing and conducting a formal ‘RFP’ process with the landlords/developers of a short-list of properties. Naturally, should you ultimately decide to relocate upon expiry of your current lease, we would pursue negotiations on financial and lease terms for the selected building. Our French Tenant Representation team has very extensive experience in both cases. In Annex 3 we list examples of substantial lease renegotiations we have conducted and also examples of new lease acquisition. In the latter case we are fully familiar with all the issues pertaining to the forward leasing of properties under construction or undergoing extensive renovation/restructuring : as indicated above, given current market dynamics and the length of time remaining prior to your lease expiry, some kind of ‘build-to-suit’ solution - with discussions on the exact nature and timing of a building renovation/construction – would be highly probable.

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C&W Team dealing with the instruction

C&W Team dealing with the instruction

Your French headquarters is a very high-profile project, deserving the highest-level senior involvement from Cushman & Wakefield. You will of course also require regular reporting throughout the project, with updates and strategy reports prepared in English.

In Paris the project will be led by Guy Grundy , International Partner and head of the C&W France Tenant Representation team. Guy has 30 years of experience of the Paris market, working on major assignments for a wide range of international clients. Geoff Swartz-Oriou , Partner and head of our International team in Tenant Rep Paris, will fulfill the role of project coordinator, working closely with Guy on all aspects of the project. Geoff has 16 years of experience in the Paris market, likewise working on major assignments for an essentially international clientele. Mark Weiss will support us as he is supporting Malcolm in the Cushman & Wakefield Washington DC office.

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6

Fee structure

Fee structure

1. Market Commissions : common practice in France The French commission structure is very different from the US. For new lettings traditionally both the incoming tenant and the landlord each pay a commission of 15% of the first year’s full annual (headline) rent. This remains the case for small requirements ; less than 8 000 - 10 000 sq ft. Landlord letting mandates are usually co-exclusive or tri-exclusive and formally permit the letting agent to take a complementary fee from the tenant they introduce. Letting mandates usually also make provision for a third-party agent (or tenant agent) to receive a proportion of the landlord letting fee if they introduce an occupier to that building. There are however no fixed rules for letting mandates; both conditions and fee-sharing arrangements vary from one landlord to another. It should be noted that, unlike in the UK for example, the majority of landlords conduct their own negotiations with tenants, whether in the case of new lettings or lease renewals. Letting mandates are therefore principally intended to cover marketing and tenant- introductions by the letting agents. Most letting mandates provide a base fee of 15% of the net effective annual rent, split between the letting agents, but depending on market conditions landlords may offer bonus payments, for example for rapid letting of a building. Concerning tenant search instructions, as in most other international markets discounts are offered by agents for larger missions. The availability of landlord fees for new lettings can result in substantial discounts being offered. In the case of lease renewals or re-gears there are no fixed rules although market practice is for the tenant representation fee, often composed of a base fee plus an incentive element, to equate to 50% of a full fee for taking new space (i.e. 7.5% of annual rent). This percentage can however be greater when there is a full market search for a ‘stay-versus- go’ project, with formal RFP to a short-list of landlords of alternative buildings. By way of example, for a lease renegotiation for 40 000 sq ft (roughly 3 700m²) at a rent - including parking and archives – of say 900€/m², the new annual rent would be around 3.3M€/pa. A market commission at 7.5% of annual rent would then be in the order of 250 000€. Since they typically conduct their own negotiations, landlords do not pay fees in respect of lease renewals or lease re-gears.

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Fee structure

2. Our fee proposal We have noted your preference for a base fee plus sole discretion bonus. We fully respect this. In order to keep the fee basis as simple as possible we propose a Base Fee of 80 000€ plus VAT, payable upon signature of a new lease or a lease addendum for your current lease in respect of the Strategy Options 1 & 2 as described above. Should you decide to pursue a temporary solution involving sub-letting of excess space in Capital 8 then we will need to provide a bespoke proposal for this, depending on the floor areas and duration of the letting. The Base Fee is supplemented by a Bonus Fee. As per your stated preference, we are happy that this should be at the sole discretion of Dechert. The above transaction fee is intended to cover our Tenant Representation services. Cushman & Wakefield benefits from having a strong Project & Development Services team in Paris, with which the Tenant Representation team works regularly to provide additional space planning and technical advice to our occupier clients. We would be happy to provide a separate quote for such work, but the scope of this would naturally depend on your specific requirements which might arise after the Phase 1 strategy review. Our proposed fee basis reflects our keen interest to work with you on this exciting and important project, pursuing our collaboration based on trust and mutual respect.

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Annexes

Annexe 1 : Market Overview and Trend PARIS CBD Office Market – Take-up and average rents

Take-up: a helping hand from co-working The Paris CBD market continues to perform well, even though immediate supply is at record low levels (108,000 sq m with a vacancy rate of 1.7%). Given this context, take-up in Q2 2019 stood at over 111,000 sq m with more than 200 transactions taking the year-to-date transaction volume to 207,300 sq m. Even though this represents a 4% year-on-year decrease, this is still the 3 rd best performance recorded in the Paris CBD over the last 10 years. In detail, there are 2 opposing trends depending on the space segment: a slowdown in transactions in the small space segment (-23% year on year) with decreases of 20% in Etoile and 27% in Centre as well as an increase in transactions for office spaces over 1,000 sq m (82,000 sq m of take-up). Etoile is currently the main beneficiary of this trend; since the beginning of the year there have already been 25 transactions representing an overall volume of 53,200 sq m (+38% year on year ), 24,000 sq m of which was carried out by co-working operators. These operators are also leading the way in the major transactions segment accounting for 4 out of 5 of the transactions recorded since the beginning of the year with a particular fondness for buildings in Etoile (KWERK on Boulevard Malesherbes and WEWORK on Boulevard Haussmann). More traditional transactions included VALEO with “Cortis” in Paris 17.

Office space take-up in Paris CBD, 000 sq. m

Take-up in Paris CBD by office space range - H1 2019

Range of office space

Sq. m Share Change Y/Y-1

Below 1,000 sq. m

86,800

42%

-23%

From 1,000 to 5,000 sq. m

82,000

40%

+23%

Above 5,000 sq. m

38,500

18%

+5% -4%

TOTAL

207,300 100%

Rental values: ever higher Rental values for office transaction in the Paris CBD remained stable over Q2 2019: the prime rent stands at €825 per sq m per year, an average of €720 per sq m per year for refurbished office space and €620 per sq m per year for second-hand space. The steady rise in rents seen in the Paris CBD since 2014 has driven up prices by 22% over 5 years for second-hand office space and 14% for new space. The increases seen in transaction rents in the Paris CBD are currently higher in the Centre (+12% year on year) than in Etoile (+3%). This has brought about an unprecedented position with virtually identical average rental values in both micro- markets that stand at around €660 per sq m per year across all space segments and types.

Office space rental values, €/sq. m/year

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Annexe 1 : Market Overview and Trend PARIS CBD Office Market – Take-up and average rents

Paris CBD office market

- Occupier demand is expected to remain strong throughout 2019 ; numerous and diverse companies are looking for ultra grade A office space in central locations - Vacancy rates are unlikely to rise significantly over the next 2/3 years, since opportunities for renewal of supply are limited - Pressure will remain on rental values with forecast of over €850 - €900 / sq m / year by end-2019 for the very best office space in Paris CBD

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Annexe 2 : List of representative potential relocation properties

Confirmed on/off-market availabilities

2020

7 ave George V Paris 8 4 164 sq m

128 bld Haussmann Paris 8 3 316 sq m

4 rue du Général Foy Paris 8 3 935 sq m

128 rue du Faubourg Saint-Honoré Paris 8 4 924 sq m

12 ave George V Paris 8 3 646 sq m

Confirmed on/off-market availabilities

2021

2022

24 ave Marceau Paris 8 3 500 sq m

Cezanne St Honoré Paris 8 7 155 sq m

83 Ave Marceau Paris 16 8 879 sq m

25-27 rue d’Astorg Paris 8 4 646 sq m

37 rue de la boétie Paris 8 9 284 sq m

18 rue Washington Paris 8 5 930 sq m

CUSHMAN & WAKEFIELD

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Annexe 3 : Cushman & Wakefield references

A high-level selection of some of our recent relevant Tenant Representation work in Paris are listed below.

Company name

Size sq.m Year

Transaction type

6 300

2018

Lease Acquisition

•

2 000

2018

Sub-lease

•

1500

2018

Lease Renewal – partial surrender

•

2 000

2019

Lease Renegotiation

•

6 500

2019

Lease Renewal

•

5 500

2017

Lease Re-gear/Expansion

•

800 3 600 3 400

2011 2015 2017

Paris HQ creation

• • •

Lease Acquisition/Relocation Lease Re-gear/Expansion

8 800

2018

Lease Re-gear/Expansion

•

9 100

2018

Lease Renewal

•

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Annexe 4 : CV’s

Guy GRUNDY

• International Partner – Head of Tenant Representation France • Tenant Representation department • 30 years of experience

EDUCATION •Degree in Geography, Oxford University •Master in Planning Studies, London School of Economics •Chartered Surveyor since 1989, accreditation achieved via the RICS direct entry examinations.

CONTACT : • Guy GRUNDY • Phone: +33 (0) 6 25 84 30 25 • Email address: guy.grundy@cushwake.com

ROLE • Guy Grundy is head of the French Tenant Representation department. He is an expert in real estate transaction and project coordination, specializing in lease acquisition, disposals, consultancy, lease

negotiations and lease renewals. PROFESSIONAL BACKGROUND • 30 years of experience, of which 23 in France.

• Guy previously spent 16 years at Jones Lang LaSalle (JLL) in Paris where he was Head of International Corporate Solutions, advising on numerous significant tenant rep assignments for clients such as Accenture, Morgan Stanley and Microsoft. Other recent major client assignments include Sony Europe and Ogilvy & Mather. Prior to moving to Paris in 1990, he spent seven years in London at Goddard and Smith, gaining wide experience servicing retail and local authority clients. KEY ASSIGNMENTS • Acquisitions: Salesforce (5,500m²), Alcatel-Lucent (4,500m²), Ericsson (13,000m²), Colgate (4,000m²), Accenture (20,000 m²), Morgan Stanley (6,000 m²), AOL (14,000 m²), Xerox (15,000 m²), Microsoft (35,000 m²), Sony (9 000m²), Deutsche Bank (7,000m²) • Disposals: Citibank (sale of 16,000 m², subject to leaseback of upper floors), Cisco (leasehold disposal of 7,000 m²), Microsoft (sale & leaseback of 23,000 m²), ExxonMobil (sale of 25,000 m²), Merck (sale and leaseback of 5 000m²) • Consultancy: Xerox (strategic options study), AIG (lease renewal negotiation with third party tenant for circa 13,000 m²), Deloitte (portfolio audit), Technip (strategic options study) • Lease renewals/negotiations: Linklaters (9 000m²), McCann (12,000m²), Whirlpool, Philips (4,000 m² each), Goldman Sachs (3,500 m²), Deutsche Bank (10,000 m²), Allen & Overy (increase from 3 000m² to 6 000m²) Accenture (11,000 m²), ING Direct (6,000 m²), Wilkie Farr (4 000m²), Morgan Stanley (6 000m²), Thomson Reuters (3,500m²)

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Annexe 4 : CV’s

Geoffrey SWARTZ-ORIOU • Partner

• Tenant Representation department • 19 years of experience

EDUCATION •Master’s degree in International Business at Rennes Business School •Double BA degree Business Administration & Languages – ESC Rennes & University of Portsmouth

CONTACT : • Geoffrey Swartz-Oriou • Phone: +33 (0) 6 80 89 38 32 • Email address: geoffrey.swartzoriou@cushwake.com

ROLE • Geoff Swartz-Oriou is the lead partner for C&W’s Paris International Tenant Representation team. • Geoff is an expert in real estate transaction, specializing in lease acquisition, disposals, site redevelopment, lease negotiations and lease renewals. He brings significant experience on project coordination for multiple competency corporate projects (Transaction Management, Project Management, Design & Conception, General Contractor tenant fit out). PROFESSIONAL BACKGROUND • 19 years of experience, of which 16 in France. • Geoff previously spent 9 years at Jones Lang LaSalle (JLL) in Paris as manager within the Tenant Representation and Consulting team, advising on numerous significant assignments for clients such as Accenture and Procter & Gamble. Other pertinent major client assignments include Freshfields, Linklaters and Wilkie Farr. Prior to working for JLL, he spent five years working for Deloitte Consulting in Europe. KEY ASSIGNMENTS • Acquisitions: Novartis (43 000m²), Siemens (41 000 m²), Unilever (16 000m²), Daimler (13 000m²), Huawei (12 000 m²), LFB (10 000 m²), OECD (6,200m²), Accenture (5 000 m²), Stanley Black & Decker (5 000 m²), ARM (5 000m²); Experian (4 500 m²), Deutsch Bahn (4 000m²); Colgate (4 000m²), Akamai Technology (2 500m²), Cognizant (2 000m²) • Lease renewals/negotiations: Procter & Gamble (15 000 m²), Kraft Foods (12,000m²), Accenture (10 000m²), Abbvie (9 000m²), Linklaters (8 200 m²), Reed Exhibition (7,000 m²), ING (6 500 m²), FIS SunGard (6 200 m²), Elsevier (5 500 m²), BT (4 000m²), Wilkie Farr (4 000 m²), RBC (3 200m²), Gartner (2 500m²) • Disposals / redevelopment: Novartis (30 000m² residential redevelopment), Novartis (16 000m² Sales & Leaseback), Parker (24 000m² residential redevelopment, 3M (20 000 m² Residential redevelopment & 12 000m² office development), TNT (16 000m² Sales & Leaseback), HP (leasehold disposal of 15 000 m²), Fnac (leasehold disposal of 13 000 m²), Mylan (12 000m² Office sale); (Mondalez (Dilapidations exit of 8 000m²), Motorola (leasehold disposal of 6 000 m²)

• Consultancy: Microsoft, Siemens (European portfolio review), Allianz (European office asset review), Deloitte (portfolio audit), Technip (strategic options study), Postimmo (Corporate restructuring); Oracle (portfolio optimization)

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